The Only Big Oil Worth Owning?

With so many stocks near their highs, you might say it’s impossible find a sector with room still to run. But look at the oils, a group Cramer said has “hardly anything over the last five years.” That could change now that oil futures are shooting higher off low gasoline inventories.

Of course, they’re not all worth buying. Definitely not Exxon Mobil . The company’s $41 billion purchase of XTO Energy was too high a price and it overexposed Exxon to weak natural-gas prices. Not to mention, it turned what was once a diversified international outfit into one that’s more domestic. And that’s just a short list of Cramer’s problems with this once-great business.

He’d rather see investors in ConocoPhillips . Yes, it’s the worst-performing stock in the big oil group, down 18% in five years versus the S&P 500’s 7% decline, but that just means COP is undervalued. Cramer certainly thinks so, and he’s a big fan of the 3.8% dividend yield.

Aside of just being cheap, Cramer endorsed COP because it’s not hostage to nat gas or oil prices. And that’s because this company has proved itself to be “the ultimate turnaround story,” he said. Conoco’s restructuring program, announced in 2009, has changed this overbloated behemoth into a leaner, meaner and focused integrated oil firm. The non-strategic assets are being sold off, and that cash is being used to dig for more oil, pay down debt, buy back stock and—best of all—boost the dividend.

Given this, you may wonder why COP is trading higher than it is right now. Well, it turns out this company has a history of talking up its intentions to change and become more profitable, only to never in fact do that. So now the Street’s yawning at Conoco’s efforts this time around. But that’s obviously the wrong attitude when you consider Conoco already announced $15 billion worth of asset sales this year, with another $10 billion expected to go over the next two years.

There aren’t many stocks in this market that are still cheap, but Conoco’s one of them.

COP offers a “terrific risk-reward,” Cramer said, “It is OK to start buying Conoco right here.”

When this story published, Cramer’s charitable trust owned ConocoPhillips.

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